In a graphic illustration of how the hopes for "Abenomics" are
falling short, the city was forced to raise by two-thirds its budget
for the project to more than $1 billion before some of Japan's top
construction companies stepped forward.
"Wages and material costs are rising, and that's why we failed to
attract bidders the first time we tried," said Koji Ishii, a city
official overseeing the project, on a sprawl of landfill at Toyosu,
next to Tokyo Bay.
Tokyo's predicament highlights a deeper problem for Prime Minister
Shinzo Abe's economic revival plan for Japan, comprising his "three
arrows" of hyper-easy monetary policy, fiscal spending and
growth-generating structural reform.
The construction industry has gone through a scorching restructuring
over the past decade and a half of hard times since Tokyo last
opened the fiscal taps, government officials and managers in the
Many firms are choosing to walk away from government projects rather
than invest more in equipment or hire workers — fixed costs that
would be hard to shed in the next downturn. In the midst of a
building boom, Japan's construction companies, who stand to benefit
most directly from Abe's policies, are acting as though the good
times will not last.
Some critics argue that spending on public works projects — a
mainstay of Japan's economic stimulus efforts in the 1990s — is
wasteful and Abe would be better off focusing on deregulation and
But progress on that "third arrow" has been slow, and while Bank of
Japan's massive monetary stimulus has been generally judged
effective, the fiscal boost many hoped would keep the economy
rolling is proving hard to restart.
BLUNTING THE SECOND ARROW
Problems with the "second arrow" of Abenomics are biting at a
crucial moment for Japan's recovery. Investors have grown wary of
slowing growth as Japan's economy heads for a speed bump: a
3-percentage point hike in the consumption tax hike in April.
The benchmark Nikkei stock index is down nearly 8.5 percent this
year — making Japan the worst performing major stock market.
Even before Abe's public works push, contractors were already
struggling to absorb demand for new building projects tied to the
2020 Tokyo Olympics and reconstruction work in the areas of northern
Japan destroyed by a 2011 tsunami.
"Prime Minister Abe has been driving more public works, but we have
work to be done for reconstruction in northern Japan and we have to
control the number of projects we can take," said Junichi Ichikawa
from Obayashi Corp, one of the contractors involved in the
construction of Tokyo's new fish market.
With companies cautious and workers scarce, local governments have
been forced to cancel or scale back plans. As a result, money
budgeted for bolstering the economy has stayed stranded in public
Japan had to roll over to the next budget $37 billion it failed to
spend out of the $98 billion earmarked for public works in the last
fiscal year to March 2013. Government-funded construction projects
contributed only a third as much to growth in the fourth quarter as
they had in the previous two quarters.
Earlier this month, the Ministry of Finance issued an unusual
directive urging other government agencies to expedite public works
spending in the face of an endemic shortage of labor, especially in
skilled jobs where experienced workers are retiring and a younger
generation has not been trained. The government also hiked the
allocation for labor costs by 7 percent.
OPEN FIELD, FAILED AUCTION
At the Toyosu site, three cranes and a half dozen trucks were moving
soil this week as a knot of workers assembled a fence, the first
phase of a project to transform an expanse of open land as large as
almost 60 soccer pitches into a wholesale fish market to replace the
current, crowded market in Tsukiji, a tourist destination for its
early morning bustle.
The project is due to be completed by early 2016. The area nearby is
also slated to be redeveloped to house Olympic athletes and major
events for the 2020 games.
Three groups won bids for the project, led by Taisei Corp, Shimizu
Corp and Kajima Corp. Obayashi, Takenaka Corp, Tokyu Construction,
Kumagai Gumi, Nishimatsu Construction are also involved.
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The Tokyo government will make up for the higher cost of the new
fish market by delaying projects for ventilation and water
distribution systems for the new market. The initial failed bidding
process, in November, means that the project is already a month
behind schedule, officials said.
The Toyosu project is just one, high-profile, example of a
In the northeast of Japan's main island, Honshu, the area destroyed
by the 2011 tsunami and earthquake has seen a sharp rise in
unsuccessful public works auctions. In December, a third of all jobs
failed to attract bidders, government data show. That was up from
zero percent just after the disaster.
Other areas of Japan are also struggling to spend: 86 auctions for
public works projects had to be re-run or cancelled in Abe's home
area of Yamaguchi, including a $24-million disaster prevention
centre that had been planned for the city of Iwakuni, Japanese media
"There are too many projects issued at the same time, so companies
have grown very selective because if you pick a big project and then
can't gather enough workers, you go under," said Shozo Doi who runs
a construction firm on the suburbs of Japan's second-largest city,
Nearly half of the construction companies surveyed by the Ministry
of Land, Infrastructure and Transport in December predicted it will
be difficult for them to secure skilled workers in the next two
months. The survey also showed that the shortage of skilled workers
needed to work on the biggest projects has deepened since the spring
Japan's construction workforce — like its population at large — is
shrinking and aging, government data show. It is a third smaller
than when public works peaked in 1997. As of 2010, about a fifth of
all construction workers were over 60 years old.
"Construction companies don't believe the status quo will last for
another 10 years. That's why they don't want to employ more
workers," said Yorihisa Matsuno, a lawmaker from the opposition
Japan Restoration Party who recently raised the issue of the stalled
public works pipeline in parliament.
"It's very risky to employ people in Japan. The lifetime employment
system means you can't fire them easily."
At the same time, many projects are running over initial budgets
because of rising costs for materials like steel and cement. Part of
Abe's economic plan is to push prices higher and break away from the
deflationary, slow-growth spiral that had held in Japan for a decade
and a half.
But the experience of the construction sector shows the risk from
higher prices. Government outlays on roads, buildings and bridges
are buying less for the same amount of money. Prices for steel
girders, or H-bars, used in large-scale projects in Japan have
jumped to 82 yen per kg from 70 yen per kg in less than a year. The
biggest jump in prices has been recorded in the areas of highest
demand — the disaster area north of Tokyo.
The Economic Research Association, which tracks prices for
construction materials, said its reading for a basket of materials
in Sendai — the northeastern city at the heart of Japan's
reconstruction boom — stands at the highest level since it began
keeping records in the early 1990s.
With Japan's economy slowing, many analysts believe the Abe
government will ready another fiscal stimulus package — and more
public works spending — later this year. There is also a building
expectation that the Bank of Japan will have to expand its already
unprecedented injection of money into the economy.
"It's hard to say public works is the best policy, but it has to be
done," said Koichi Haji, an economist at NLI Research Institute.
"The government has not come up with a better alternative yet."
(Editing by Alex Richardson)
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